The S&P 500 continued its rise yesterday trading all the way up to a high of 2064.50. That’s up 45.25 handles from Tuesday’s 2019.25 low. The rebound in the S&P has again not only stopped the US stock market decline but was also was reason for the global push higher. As we have said many times; the S&P 500 is, and always will be, the leading stock market index.
We are going to keep this short and sweet. While we admit to looking for some type of high, we also recognized that after six straight weeks of going higher the ESH16 neede to sell off, but the same pattern we have been seeing throughout the rally came popping right back up after last Thursday’s 16.50 handle drop. The inability of the futures to break down through the 2024 level was the first key, but after 3 separate lows from the 2022 level down to the 2019 level, the S&P was saying one thing and one thing only; back and fill. If the ESH16 wasn’t back and filling above the vwap it was back and filling under the vwap. Every time the exhausted itself the ESH16 would start to trade sideways and the pop higher.
So where are we? Last week when we did a Twitter poll traders were unanimously bearish, but after the ESH traded higher earlier in the week we did a twitter poll on Tuesday, and most traders flip-flopped back to being bullish. We understand that a good part of that had to do with the fed finally realizing that they can’t raise interest rates, and the other part is all the stubborn shorts that continue to sell the S&P and then cover their shorts.
How high can the S&P go? My view is that it has already gone too far, but that isn’t a reason to constantly be looking for a place to sell. As we all know, the ‘trend is your friend’, and for those of us that have been trying to sell the index, we know the short sale opportunities have been hard to find. Over the last several days I have continued to point out the Stock Trader’s Almanac statistics, and for those of you that didn’t see them, this is how they lay out over the next few days and weeks.
- Last trading day of March; Dow down 16 of the last 27, Russell 2000 up 15 of the last 21 occasions.
- First trading day of April; Dow up 16 of the last 21 occasions.
- April is the best month for the Dow averaging a monthly gain of +1.9% since 1971.
- April is the third best month for the S&P and fourth best month for the Nasdaq since 1971.
- Monday before the April options expiration has been up 18 of the last 22 occasions, but mixed over the last 11 years.
- Income Tax Deadline (April 15th) is generally bullish, Dow has only been down 6 times since 1981.
- April expiration day up 14 of the last 19 occasions.
- April is prone to weakness after April 15 tax deadline.
Traders, the bottom line is that the markets have been moving higher for over a month and a half, and are still moving higher. One of the things that does stick out is what i was talking about above. When we polled people last week most were bearish, and after the fed pushed back raising interest rates this week, everyone has gone bullish. In most cases, when you see that type of sentiment shift after the markets have rallied so much, it generally means that stocks could be getting close to making a high. With all the positive stats mentioned above it would almost be too hard to believe that the markets would reverse lower into so many bullish scenarios.
For the last two weeks it’s been all about the March month end, the end of the first quarter, and some type of possible walk away trade. With tomorrow’s March jobs report set to be released we may have to wait to see how this all plays out. As always, I do my best to think ahead, and after todays possible walk away trade, we will be looking at another one of MrTopSteps trading rules; counter trend Friday.
In Asia, 6 out of 11 markets closed higher (Shanghai Comp +0.11%), and In Europe, 9 out of 12 markets are trading lower this morning (DAX -0.40%). Today’s economic calendar includes the Challenger Job-Cut Report, Jobless Claims, Gallup Good Jobs Rate, Charles Evans Speaks, Chicago PMI, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, Fed Balance Sheet, Money Supply and William Dudley Speaks.
Our View: We have a big economic calendar today and tomorrow. It levels off next week, but April begins the new quarter, and it’s my guess the mutual funds have cash to put to work. I am going to close out by saying this; I think the ES is close to a high, but based on the current price action, that doesn’t mean a big drop is about to start. There is a big difference between a 20 or 25 handle pull back and a 60 handle drop, and right now a small drop could lead to higher prices. Our view, sell the early rallies, keep an eye on for the walk away trade, and buy weakness late if the S&P isn’t going down hard.
The S&P 500 and the Yellen Reality Check
- In Asia 6 out of 11 markets closed higher: Shanghai Comp +0.11%, Hang Seng -0.13%, Nikkei -0.71%
- In Europe 9 out of 12 markets are trading lower: CAC -0.87%, DAX -0.40%, FTSE -0.42% at 5:30am CT
- Fair Value: S&P -8.40, NASDAQ -10.04, Dow -101.06
- Total Volume: 1.6mil ESM and 4.0k SPM traded
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